Is China about to tell the West: 'Game Over'?

My Dad won't like this. As a massive Sinophile, he won't hear a bad word said about the Chinese and their honourable intentions. But here are two pieces I'd like to draw to your attention which offer an interesting counter-perspective.

Let’s look at the problem of China’s aggression from China’s perspective. They have stated that the bulk of the South China Sea is Chinese territory and that the claim will be enforced. This means seizing it from its current owners — Vietnam, Malaysia, Indonesia, Brunei and the Philippines. They have also said that the Senkaku Islands, part of Japanese territory, are rightfully theirs and that they “have unshakeable commitment to safeguard our country’s sovereignty and territorial integrity”. At some stage Beijing must follow through with its threats or lose respect, and getting respect is what the purpose of the exercise is in the first place.

It gets worse:

With its fuel needs accounted for, China’s next decision is whether or not to pre-emptively attack US bases in the Western Pacific as part of its attack on Japan and the Philippines. It is almost certain to, for the same reason that Japan attacked Pearl Harbor in 1942. A successful pre-emptive attack would be an equaliser, giving China a much freer hand in the region for months. It would also provide more certainty in that China would be facing a much weaker US presence in the western Pacific, rather than the potential for the US to enter the conflict at a time and in a manner of its choosing. Ego would also play a large part in the decision for a pre-emptive attack. China wants to be recognised as the most powerful country on the planet. Successfully driving the United States from the western Pacific would put that beyond doubt.

This dread moment may be closer than we think:

A further indication of Chinese timing is the tone of rhetoric being used by China in describing what it will do. For example, Reuters reported on June 28 that “China’s state media warned on Saturday that a ‘counterstrike’ against the Philippines was inevitable if it continues to provoke Beijing in the South China Sea”. A dispassionate observer would consider the notion that the Philippines is provoking China to be delusional. The statement in the state media would have been for domestic consumption — preparing the Chinese public for war by invoking Filipino provocation as the casus belli. The nature of the language suggests China is in the late stages of preparing for the coming conflict.

Or, if a military conflagration strikes you as too implausible, how about an economic one? This next piece by Michael Snyder ought perhaps to be accompanied by a caveat emptor: he's an economist from the WTSHTF school, so is understandably predisposed towards doomsday scenarios. Then again, it wasn't Snyder, I don't think, who put these words into the mouth of a deputy governor of China's central bank last week.

The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.

Nov 21 (Reuters) – The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

China, which overtook the United States as the world's top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.

Snyder is pessimistic as to what all this signifies:

The world is changing, and most Americans have absolutely no idea what this is going to mean for them. As demand for the U.S. dollar and U.S. debt goes down, the things that we buy at the store will cost a lot more, our standard of living will go down and it will become a lot more expensive for everyone (including the U.S. government) to borrow money.

Unfortunately, there isn't much that can be done about any of this at this point. When it comes to economics, China has been playing chess while the United States has been playing checkers. And now decades of very, very foolish decisions are starting to catch up with us.

The false prosperity that most Americans are enjoying today will soon start disappearing, and most of them will have no idea why it is happening.

You're welcome to disagree. Indeed I hope you do disagree and that you're right – and that Snyder and Archibald are wrong. But have you ever tried reading private journals or newspapers from the 1930s? What will surprise you is that right to the very last minute – up to the moment indeed when war actually broke – even the most insightful and informed commentators and writers clung on to the delusion that things would somehow turn out all right. I do hope that history is not about to repeat itself. Unfortunately, the lesson from history is that all too often it does.

The years ahead are going to be very challenging, and so I hope that you are getting ready for them.